The Japanese yen is directionless in Monday trade. In the European session, USD/JPY is trading at 109.71, down 0.10%.
The week has started with a data dump out of Japan, and the numbers have been a mixed bag. Industrial Production rose by 2.5%, marking a second straight gain. However, this was well short of the forecast of 4.0%. Retail Sales jumped 12.0% in April, a massive gain which points to a strong increase in consumer spending. Still, analysts had projected a gain of 15.4%. Consumer Confidence and Housing Starts both beat the estimates, with readings of 34.1 and 7.0%, respectively.
With major economies showing stronger growth in the post-Covid era, central bank officials are keeping a close eye on inflation, as higher inflation could prod the central banks to tighten policy sooner rather than later. The week ended with a strong inflation reading out of the US. The Core PCE Price Index, which is the Federal Reserve’s preferred inflation gauge, jumped 3.1% in April, up strongly from 1.8% and above the consensus of 2.9%. The US dollar didn’t jump in response, but with a long weekend for a US national holiday, the market reaction to the jump in inflation may be delayed until Tuesday. The US dollar showed some strength after an unexpectedly high April CPI, and a second indicator of rising inflation could lift the greenback.
Inflation levels remain at very low levels in Japan, and with the economic downturn due to Covid, there is little reason to expect that this will change anytime soon. Last week, BoJ Core CPI, the Bank of Japan’s preferred gauge of inflation, dipped to -0.1% in March, down from zero a month earlier. The index has mustered just one gain in the past 13 months. Tokyo Core CPI followed with a soft read of -0.2%, marking a tenth consecutive decline.
- USD/JPY faces resistance at 110.53 and 111.18
- On the downside, there is support at 108.89 and 107.90
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